Whether you are college bound, or the parent of one, you are not alone in asking “how will we pay for college?”. As college costs continue to rise, many need to plan and creative ways to save. Here is some recent data to help you understand just “how are Americans paying for college?”
How Americans are Paying For College in 2020
For another year, the team of Sallie Mae and Ipsos took a look at how real families like you are going to pay for college. They also look at which resources people used, and how they felt about their choices. This was the 11th national study of its kind and has some interesting data.
The Sallie Mae Annual Report: How America Pays for College is the 11th national study of its kind. Here are 3 highlights from this study that show how the average American family paid for college.
1. Every Family’s Situation is Unique
Situations are unique in terms of size, expenses, income, and, customs. These things may impact the way a family such as yours pay for college. The data below shows the most popular ways students and parents fund a college degree.
- 31% of the total cost of attendance tends to be covered by scholarships and grants. This category includes institutional aid as well as state and federal grants.
(he majority of families used scholarships to cover at least part of tuition, and 50% of these scholarships were awarded by the college itself.) - 14% of the cost of attendance was typically covered by loans taken out by the student, including both private student loans and federal subsidized and unsubsidized loans.
- 10% of the cost on the student’s end was covered by the student’s personal income and savings.
On the flip side, about 30% was typically paid for using parental income and savings, and an additional 10% from parent borrowing.
The majority of students expect to be solely responsibile for paying back student debt after they graduate. 64% of plan to repay their loans without help from their parents. 75% of students also plan to pay back their parents for the money they contributed.
Paying for College Recap
| Where do the dollars come from? | % Paid |
|---|---|
| Scholarships and Grants | 31% |
| Parent Income and Savings | 30% |
| Loans Taken Out By Students | 14% |
| Student Income and Savings | 10% |
| Loans Taken Out By Parents | 10% |
| Friends and Family Contributions | 2% |
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2. More and More College Expenses are Falling on Students
Overall, the average American family reportedly paid about $26,226 for tuition in the 2018-19 school year. And since 2011 student contributions have increased while parent contributions have actually declined. There has been some speculation that the decline in parent contribution could have been influenced by an overall decline in parent income.
But with more and more students paying for college themselves (or to a greater degree), and parents in somewhat tighter financial situations, how did those families prepare—or not prepare—for that level of expense? Families across the country typically blended an array of strategies, explored below.
Planning Ahead
While we all know we should plan ahead, lots of us just don’t do it. 90% of families knew from the beginning that their son or daughter would inevitably attend college. By contrast, fewer than 40% of families actually created a plan.
When families did prepare in advance for college costs, many of them opted to use a 529 College Savings Plan. Approximately 21% of families used a 529 to pay at least part of college tuition. Families who used one saved about $7,343 on average. Other strategies include using personal savings and investments.
Scholarships & Grants
What makes scholarship and grant money great is that unlike a loan, you do not have to pay them back. As result, they are a popular source of financial aid. Whether the funds are need-based or merit-based, scholarship and grants are one of the biggest factors in making college education affordable for many families. So it’s no wonder that so many students and families try to get them!
For the 2018-19 school year, 80% of families said that they or their child looked or applied for scholarship opportunities. And, just under 50% reported receiving scholarships to help pay tuition and other expenses. The average amount of scholarship money going toward college was $7,562, which was an increase from 2017-18. Where student’s found scholarships:
- 61% of people using scholarships received some from the college itself
- 31% of people received scholarships or grants from private or community organizations
- 21% received scholarships or grants from their state or local government
Student Loans
Student loans were another major component in many families’ college funding strategies in the 2018-19 year. In fact, 38% of families reported using student loans to cover at least part of the cost of tuition. In this context, we’re referring specifically to funding borrowed by the students themselves, as opposed to loans taken out primarily by their parents.
77% of families filled out the Free Application for Federal Student Aid (FAFSA), which could reflect either a growing awareness of the FAFSA in general, or an increased need for federal aid by families. As a result, 21% of families ultimately used federal student loans, either subsidized or unsubsidized. A further 7% of families reported using private student loans to cover some of the cost.
Part-Time Jobs
Scholarships, grants, and loans still may not be enough. Lots of students cover the difference by getting part-time jobs! Either students work through high school to save money ahead of time, and/or work through college to cover additional expenses. For 2018-19, students and their families reported the following data about their employment, spending, and saving habits.
- 22% of students said that they worked part-time to help pay for college and its associated costs.
- 37% of students kept those jobs year-round, whereas the remainder either worked exclusively on breaks, or only during the school year.
- 53% of working students said that they increased their hours to help save for or pay for college. (Students in the Midwest were most likely to do this)
Parents Paying for College
Many families rely on a combination of strategies to help ease the burden of tuition expenses. Here’s a breakdown of how different families chose to approach paying for college.
- 55% of families said that they used the parent or parents’ current income to help pay tuition. The average contribution from parent income was $8,632.
- 21% of families said they used a College Savings Plan or 529. The average contribution from a 529 was $7,343.
- 27% of families said they used another form of savings, such as investments. The average amount contributed from these sources was $4,203,
- 5% of families said they dipped into their retirement savings to help. The average amount used was $3,509.
3. Over Half of Families Believe Paying More for College Equals a Better Education
Paying for college is a pretty complex topic. With a diverse set of students and families throughout the United States, and a range of strategies to cover that cost, it follows that there are also a lot of different opinions about it. While each family and community might have its own perspective, there are some trends we can identify. This is particularly the case with respect to borrowing and student debt. Here are a few examples of how families like you feel about student loans and college costs in general.
- 36% of borrowers say they would rather borrow than not attend college.
- 46% of undergraduate borrowers plan to attend grad school as well.
- 37% of borrowers say that attending college is “the American dream.”
- 62% of families believe that paying more for college means that you’ll get a better education
- 50% feel they will earn more.
Paying for College in Your Family
Sallie Mae and eStudentLoan encourages students and families to borrow responsibly by starting with savings, grants, scholarships, and federal student loans to pay for college. Then, fill any remaining financial aid needs with a responsible private education loan. Learn more about the 1-2-3 approach and about student loan options from Sallie Mae.